management contract for the planned
renovation of the property with the
JV; and the seller receives the benefit
of each part of the plan i.e. value from
refinancing, new debt, lower interest rate
and cost, and better return on investment.
Seller also derives benefit from “owner’s
eyes” in management and construction
management. If the property increases
in value over the next few years, after
Seller’s preferred return, the Buyer’s
share of the profits on resale doubles
from 5 percent to 10 percent. Arguably,
its broker has brought value to the seller –
but how much benefit, and when?
In this scenario, how would your own
listing agreement protect you? Was the
possibility of a JV overlooked (no deed,
no closing, therefore no commission)?
Is your fee based on the amount of “new
money” meaning the reduced fee in our
example? Was the fee a fixed amount
or a minimum amount if the property is
essentially taken off the market, i.e. as
liquidated damages? Could this merit
a full fee because the property was
removed from the market? Might the
fee be computed on the value added,
meaning future value at time of resale?
You procured a buyer who invested
cash, brought management expertise,
As much as I worry about deferred
commissions, could an agreement be
made that the commission should be
based on the “ultimate” closing, the value
created from the JV the broker procured?
Consider the following language which a
well prepared broker might use:
“If Owner is a partnership, corporation,
limited liability company, or other
business entity (collectively “Ownership
Entity”) and an interest is the Ownership
Entity is transferred, whether by merger,
outright sale, or through recapitalization
of the Ownership Entity, in lieu of a sale
of the Property, and applicable law does
not prohibit the payment of a commission
in connection with such sale or transfer,
the commission shall be calculated on the
fair market value of the Property rather
than the gross sale price, multiplied by the
percentage of interest so transferred and
shall be paid at the time of the transfer.
Add the following:
“In the event that Owner forms a joint
venture, Owner shall pay Broker a
commission on the value of the portion
of the property or the entity which owns
the property sold or contributed to the
new venture; “and as a result of the new
venture, if the Property is sold thereafter
within ______ years, Owner shall pay
broker a deferred commission computed
as __ percent of the profit realized,
computed as the difference between the
gross sale price and the value of the joint
venture initially stipulated.”
This seems fair, Seller gets new
management, new debt with better terms,
buyer gets an extra “bonus” share of sale
proceeds – and the broker who put it all
together for the parties, gets some extra
commission. Perhaps some inclusive
language in the listing agreement could
cause such a scenario.
You probably can’t predict how every deal
would take shape, but you should try and
cover your right to commission for value
added. The challenge is computing that
value and getting your client to recognize
and reward your own contribution.
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